SEPTEMBER 2013 REGULATORY UPDATE NEW ZEALAND MINERALS SECTOR

Transcription

1 SEPTEMBER 2013 REGULATORY UPDATE NEW ZEALAND MINERALS SECTOR

2 REGULATORY UPDATE NEW ZEALAND MINERALS SECTOR 1

3 NEW ZEALAND MINERALS SECTOR REGULATORY UPDATE This publication updates a stock-take we produced in February this year on the regulatory regime for the development of New Zealand s substantial minerals endowment. The department responsible for managing the Crown s mineral estate the New Zealand Ministry of Business, Innovation and Employment (MBIE) says the size of the prize could be economy-changing (country making). MBIE s latest Petroleum and Minerals Report says the sector is the most productive in the New Zealand economy and that this summer will be one of the busiest on record with 13 exploratory wells being drilled offshore and 27 onshore. The key pieces of legislation discussed are: The Crown Minerals regime the Crown Minerals Amendment Act 2013 sets up a two tier system which focuses the regulatory effort on those mining activities which are more complex and offer the highest returns to the government: petroleum (oil and gas), hard rock gold and silver, coal and ironsands, phosphates and sulphides. The Act came into force on 24 May The Exclusive Economic Zone and Continental Shelf (Environmental Effects) Act the Act, which was passed last year, establishes a broad environmental management regime in New Zealand s territorial waters and applies to seismic surveying, cable laying, seabed mining, the construction and installation of oil and gas rigs and such possible future uses as deep sea aquaculture. Emissions trading New Zealand s Emissions Trading Scheme (ETS) applies to all key sectors except agriculture. New Zealand was one of the first countries outside Europe to introduce a comprehensive emissions regime, but obligations on emitters have been softened since the scheme s introduction, due to the difficult economic environment and the current government s desire to see the country do no more than its fair share in combatting climate change. Resource management the Resource Management Act 1991 is a well-established piece of environmental legislation, concerning the use of land, air and water in New Zealand. The Act is subject to on-going reform, following a series of major changes over the past three years. CONTACT: REGULATORY UPDATE NEW ZEALAND MINERALS SECTOR 1

4 TABLE OF CONTENTS STOCK-TAKE 3 The Crown minerals regime 3 Health and safety 5 The Exclusive Economic Zone and Continental Shelf (Environmental Effects) Act 5 Phase II Resource Management Act reforms 6 The Emissions Trading Scheme (ETS) 7 Also on the Government s agenda 8 OTHER DEVELOPMENTS 9 Fracking investigation 9 Investigation into commercial use of the conservation estate 10 Overseas investment regime clarified 10 A win for mining in the Buller Coal case 10 Block offer tender process 11 ABOUT CHAPMAN TRIPP 12 OUR ENERGY AND NATURAL RESOURCES PARTNERS 13 OUR ENERGY AND NATURAL RESOURCES SENIOR ASSOCIATES 14 2 REGULATORY UPDATE NEW ZEALAND MINERALS SECTOR

5 STOCK-TAKE The Crown minerals regime The Crown Minerals Amendment Act The Crown Minerals Amendment Act sets up a two-tier system which concentrates the regulatory effort where the risks are higher and where there is the greatest opportunity to generate revenue for the government. Tier One activities petroleum (oil and gas), hard rock gold and silver, coal and ironsands, phosphates and sulphides are subject to more hands-on and co-ordinated management, including: an upfront health, safety and environment (HSE) assessment process which makes exploration and mining permits contingent on a health and safety clearance by the relevant authorities and includes HSE considerations in the definition of good industry practice a more pro-active monitoring system which is meetings-based rather than relying entirely on documentation and form-filling more flexibility, but stricter management of both the minerals and petroleum permitting regimes (including longer term permits and more flexible policies for permit allocation but broader permit relinquishment and revocation rights for the government and tighter control of permit changes), and extension of the regime to mining in the Exclusive Economic Zone (EEZ) and Continental Shelf. Access arrangements in respect of significant mining activities on government land (known as Crown land) or the common marine and coastal area must be publicly notified and jointly approved by the Minister of Energy and Resources and the land-holding Minister (generally, the Minister of Conservation). The Act also makes it a summary offence intentionally to engage in conduct that results in damage to or interference with any structure, ship or associated equipment and activities used in off-shore mining operations or in the processing, storing or transporting of minerals. In addition, MBIE can designate zones in which police can stop and detain protest boats or from which they can deny protesters entry. New Minerals Programmes have been developed to support the new legislation. Permit holders can opt into the new regime whenever they wish but must transfer into it upon: application to change, surrender or replace a permit application to transfer a participating interest in a permit, or for consent to a dealing (including certain supply agreements) notification of a change in control of a permit participant, or application to change the permit operator. REGULATORY UPDATE NEW ZEALAND MINERALS SECTOR 3

6 Royalties The royalty rates are: oil and gas, 7% coal, a 2% ad valorem royalty (AVR) on net sales revenues if the accounting profits for the reporting period are $5 million or less and the higher of a 2% AVR or a 10% accounting profit royalty (APR) otherwise gold, a 2% AVR on net sales revenues if the accounting profits for the reporting period are $2 million or less and the higher of a 2% AVR or a 10% APR otherwise underground coal gasification, the higher of a 1% AVR or a 10% APR silver, platinum group elements, ironsands, phosphates and seafloor massive sulphides (SMS) the higher of a 2% AVR or a 10% APR. (No thresholds have been set for these minerals as the government considers that any such mine developments would have to be very large anyway.) Certain minimum sales revenue thresholds apply before royalties are payable. Tax treatment Legislation to rewrite the tax treatment of mining is now before Parliament and is expected to be enacted this year. The changes cover the taxation of gold, silver and ironsands primarily but include 47 other commercial minerals. Proposals include: extending the mining rules so they apply to any person (not just companies) whose principal source of income is mining activities removing the ability to deduct mining exploration and development expenditure before it is incurred deferring the deduction for expenditure on acquiring land for mining purposes until the land is sold recapturing deductions for successful exploration expenditure, if incurred on items subsequently used to operate a mine requiring mine development expenditure to be spread over the life of a mine, either on a unit of production basis (for items whose life is tied to that of the mine) or under the depreciation rules applying ordinary capital/revenue rules to determine the deductibility of costs incurred in operating a mine (for example, costs incurred in acquiring a non-permit-specific depreciable asset would be deductible under the ordinary depreciation rules) repealing the special rules allowing a corporate shareholder in a mining company a deduction for losses on loans made to the company, if the loans are used to fund mining activities. The Bill is due to be reported back from select committee on 12 December REGULATORY UPDATE NEW ZEALAND MINERALS SECTOR

7 Iwi engagement The Act introduces a new requirement for Tier 1 permit holders to provide annual iwi engagement reports to the government. Operational changes relating to how industry and Māori can work together are in the new Minerals Programmes. Health and safety New Zealand s workplace health and safety regime is being significantly strengthened in the aftermath of the November 2010 Pike River coal mine tragedy in which 29 miners died. A specialist High Hazards Unit has been appointed for the extractive industries and tougher rules are now in force in the oil and gas sector. These require: operators of larger, higher risk installations (both onshore and offshore) to prepare a safety case to be accepted by MBIE before work can commence fees of between $70,000 and $100,000 to cover MBIE s costs for the assessment of these safety cases, depending on the type of installation. A revised safety case will cost between $34,000 and $54,000 operators of smaller scale, lower risk onshore installations to prepare an HSE overview in lieu of a safety case all operators to report near miss incidents to ensure that MBIE has sufficient data to inform its regulatory priorities, and all operators to implement arrangements for independent and competent persons to examine the design, construction and maintenance of all wells. The government is also considering a number of other recommendations to: increase worker participation, strengthen the accountability of company directors and statutory mine managers, improve management training, and provide regulatory supervision for mining qualifications and emergency planning. These are being implemented through amendments to New Zealand s general Health and Safety in Employment Act and through further mining specific regulations which will take effect in December 2013 and are designed to bring New Zealand into line with international best practice. Existing mine operations will have a 12 month transition period for compliance, extendable to 36 months under special circumstances. The Exclusive Economic Zone and Continental Shelf (Environmental Effects) Act The Act extends a variant of the Resource Management Act (RMA) to the EEZ and applies to seismic surveying and cable laying, seabed mining and the construction and installation of oil and gas rigs. It also anticipates possible future uses, including deep sea aquaculture, carbon capture and storage, and marine energy generation. The permitting authority is the Environmental Protection Agency (EPA), which must issue a decision within six months of receiving an application. REGULATORY UPDATE NEW ZEALAND MINERALS SECTOR 5

8 The Act identifies nine factors which should drive the EPA s decision-making. Several of these reflect environmental or biodiversity values but they also include the economic benefit to New Zealand and the efficient use and development of New Zealand s mineral resource. Given the obvious scope for tension among these competing criteria, there may be significant uncertainty in the first years of the new regime regarding how the EPA exercises its broad discretion. Appeal rights are to the High Court rather than to the Environment Court and are limited to points of law rather than the substance of the decision. The maximum penalty for breach of a marine consent is $10 million. The regulations Activities are classed as permitted (requiring no consent), non-notified discretionary (requiring consent but not requiring public notification), notified discretionary and prohibited. No activities have been identified for prohibition at this stage. Permitted activities for oil and gas and seabed mining include: shallow core and spot sampling, seismic surveying, use of submersible vehicles, rock dredging, submarine cabling and marine scientific research. All other mining-related activities will require consent. The government is now consulting on proposals to establish exploratory deep sea drilling, water discharges and the dumping of wastes allowed by the London Protocol as nonnotified discretionary activities. The Resource Management Act The Government is embarked on a substantial reform programme to speed consenting processes under the RMA and to reduce the barriers to economic development. Among the amendments it has already enacted, and which should provide greater certainty of process for mining-related activities, are: a new nine month timeframe for consenting projects of national significance a six month limit for medium sized projects, and direct referral to the Environment Court for regional projects that meet a certain investment threshold. But the biggest reforms will come in a Bill to be introduced later this year for passage in One of these changes, to combine sections 6 and 7 in Part 2 of the RMA and remove the hierarchy which favours environmental values over social and economic benefits, is now in jeopardy after United Future and the Māori Party withdrew their support, denying National a majority. As the Bill is still being drafted, National has the option of seeking to negotiate a compromise which will allow some reform to these provisions to proceed or if this fails pushing ahead with the rest of the Bill and leaving the Part 2 battle to be fought another day. 6 REGULATORY UPDATE NEW ZEALAND MINERALS SECTOR

9 Changes which the government has indicated will be in the Bill include: provisions for stronger natural hazards management (arising out of the Christchurch earthquake experience) stronger powers of central government intervention in the national or regional interest a requirement for more engagement with local iwi in planning decisions smoother planning processes, including: - a requirement on councils to develop a single plan (including regional and district rules) - a national planning template for councils to follow - a new streamlined process mediated by an independent hearings panel with appeal rights limited to decisions where the council has deviated from the panel s recommendation - a 10 day processing deadline for simple consenting types - allowing exemptions from the need for a consent for technical or marginal breaches of a plan rule, and - limiting the scope of submissions to the matters that have prompted the notification. The Emissions Trading Scheme (ETS) The Climate Change Response (Emissions Trading and Other Matters) Amendment Act 2012 further softens the ETS s implementation to avoid imposing increased costs on business in the current difficult economic environment. The legislation does not specify a phase-out date for the transitional arrangements (the 'one for two' surrender obligation and the fixed price option), meaning that they will remain in place until at least the next ETS review in On the negative side, the status quo is, in effect, maintained regarding the treatment of liquid fossil fuels and fugitive emissions for mining companies. This means that exported product from mining (e.g. coal, gold) will include emissions costs with no ability to access free allocation of units. Other changes relevant to the mining and energy sectors include: extending the opt-in provisions for liquid fossil fuels to all obligation liquid fuels (instead of just jet fuels) to allow large purchasers of fuel to take responsibility themselves for the emissions from the fuel they purchase, rather than having that cost built into the price they pay the fuel supplier updating global warming potential (GWP) values, including increasing the GWP of methane (and therefore increasing surrender obligations for underground coal miners), and placing an ETS obligation on the combustion of crude oil or oil products by a miner. REGULATORY UPDATE NEW ZEALAND MINERALS SECTOR 7

10 Continued unlimited access to international units (subject only to a ban on units from certain industrial gas and large-scale hydro projects) and plans to increase the domestic supply via the auctioning of NZUs should ensure that businesses can still acquire relatively cheap carbon credits for the time being. New Zealand will not be signing up to a second commitment period under the Kyoto Protocol and will instead operate under the UN Framework Convention. New Zealand s first Kyoto commitment period obligations remain and New Zealand businesses will continue to have access to existing Kyoto markets until Also on the Government s agenda Other work streams include: legislation to replace and modernise the intent of the Historic Places Act. The Heritage New Zealand Pouhere Taonga Bill seeks to improve the regulatory framework for archaeological heritage and to better calibrate the balance between heritage interests, private ownership interests and economic development objectives. This Bill has been reported back from select committee and is now awaiting its second and third reading. a review by the Ministry of Transport into the minimum insurance requirements for offshore oil rigs in the territorial sea and EEZ. 8 REGULATORY UPDATE NEW ZEALAND MINERALS SECTOR

11 OTHER DEVELOPMENTS Fracking investigation The Parliamentary Commissioner for the Environment has rejected calls for a moratorium on fracking, saying that she does not think that it is justified. However she is expected to recommend a tougher regulatory regime when she delivers her final recommendations to Parliament, due later this year. This is clear from her interim report which concludes that: the risks associated with fracking can be managed effectively by the implementation of operational best practice, enforced through government regulation, but the current New Zealand framework is fragmented and may not be adequate to the task. Fracking has been in use in New Zealand since 1989 but largely confined to the Taranaki Basin. However oil and gas exploration permits have now been granted in other parts of the country, particularly in the East Coast of the North Island, where fracking techniques may be required for extraction. The geology of this area is very different to the Taranaki Basin, having a greater mix of rock types, including shales, and much higher seismicity. Specific regulatory gaps which the Commissioner has identified are: once a company has been granted a permit, it seems to be free to decide where to drill within the permitted area without any input from either central or local government although the operator must take all practicable steps to notify the High Hazards Unit 20 days before drilling begins, the actual drilling plans do not require the approval of the Unit it is not clear who is responsible for well integrity the High Hazards Unit or regional councils in the absence of New Zealand standards for well design and construction, companies are tending to follow the specifications applying in their home jurisdiction New Zealand s HSE regulation is completely separate from its environmental regulation there is no central guidance to councils on fracking (the Commissioner suggests that the EPA may be the appropriate body to provide this, given the expertise it will need to develop to perform its regulatory responsibilities in relation to off-shore drilling), and even where operators are required to provide (often highly technical) data to councils, MBIE, New Zealand Petroleum & Minerals and to the High Hazards Unit, there is no guarantee that the information is always being understood and used to enforce best practice or even good practice. REGULATORY UPDATE NEW ZEALAND MINERALS SECTOR 9

12 The Commissioner is an independent officer of Parliament but her recommendations will be influential and the Government has asked MBIE to provide a detailed response to her interim report so that this can inform her final advice. An analysis by Taranaki s regional development agency and economic consultants BERL found that fracking has the potential to deliver almost NZ$800 million in annual GDP and over 7,000 jobs under a growth scenario and that a moratorium would cost NZ$215 million a year and up to 2,000 jobs in lost opportunity. Investigation into commercial use of the conservation estate The Commissioner is also investigating conditions on the use of public conservation land by commercial operators. She has consistently stated that mining companies are paying too little for access to the conservation estate a view the industry disputes. She issued a report in August calling for law change to provide for the development of clear principles and processes for assessing net conservation benefit on stewardship land. This is a subset of the wider investigation, which is on-going. Overseas investment regime clarified The New Zealand Court of Appeal s Crafar farms decision, released last year, confirms that, if overseas investors meet the statutory criteria, the responsible Minister(s) must give consent to the investment. Although the bid by Chinese investors, Shanghai Pengxin to buy the 16 New Zealand dairy farms (known as the Crafar farms) had been approved by the government, it was the subject of several legal challenges by a New Zealand rival bidder. The result of the case is that, where previously Ministers and the Overseas Investment Office (OIO) had applied a before and after assessment to the substantial and identifiable benefits to New Zealand which the overseas buyer must establish will result from the purchase, the OIO must now apply a with or without test meaning that the applicant needs to be able to demonstrate that the benefits conferred would not arise in the absence of the overseas investment. Once satisfied that the statutory tests have been met, including the good character requirement, and that the necessary incremental benefits will result, the Ministers must approve the transaction. The rival bidders appealed to New Zealand s highest court, the Supreme Court, but last October it declined to hear the case, clearing the way for Shanghai Pengxin to go ahead with the purchase. A win for mining in the Buller Coal case An Environment Court ruling that the climate change impacts from burning coal are outside the ambit of the RMA consenting process, having been upheld by the High Court, has now also been upheld by New Zealand s highest court - the Supreme Court. 10 REGULATORY UPDATE NEW ZEALAND MINERALS SECTOR

13 The appeal was taken by environmental group West Coast ENT supported by the Royal Forest & Bird Protection Society in an attempt to overturn planning consents granted to Buller Coal and Solid Energy for proposed coal mines on the West Coast. The Supreme Court agreed with the High Court and the Environment Court that the 2004 amendments to the RMA precluded consent authorities from taking into account the climate change effects resulting from the end use of the coal mined when considering resource consents for mining activities. The High Court has now also heard two appeals by Forest & Bird against alleged errors of law in the Environment Court s judgment where it indicated it is likely to grant consent for the Escarpment Mine. One appeal and three of the five alleged errors of law in the other appeal have been dismissed in their entirety. In relation to the remaining two matters, the High Court has asked the Environment Court to keep separate its consideration of mitigation and offsets in its final decision and to decide whether it should have regard to possible future mining of the wider Denniston Plateau when imposing conditions. Chapman Tripp has been representing Buller Coal in the climate change appeal and the Environment Court case (and subsequent appeals) against the Escarpment Mine. Block offer tender processes Five areas off-shore and three on-shore, covering an area in total of almost 434,000 square kilometres, will be offered for oil and gas exploration in the 2014 competitive block tender process. A separate tender was opened in August for exploratory permits over 8,000 square kilometres of the Central Volcanic Zone, located across the Bay of Plenty and Waikato regions of the North Island. The area is known to contain epithermal-style gold and silver deposits in both extinct and active geothermal fields. Bids for areas of up to 7,500 hectares are due by January 2014 with permits to be issued in May 2014 for an initial five year period. A further tender for platinum minerals over parts of the South Island is planned for later this year. Evaluation criteria for these tender processes will include capability to meet expected health, safety and environmental requirements and to engage with indigenous communities. Permits from the 2013 tender will be awarded before the end of this year. REGULATORY UPDATE NEW ZEALAND MINERALS SECTOR 11

14 ABOUT CHAPMAN TRIPP Chapman Tripp is New Zealand s leading full service law firm with offices in Auckland (the commercial and economic centre of New Zealand), Wellington (the centre of government) and Christchurch (the South Island s business hub). We assist clients to achieve a competitive edge in today s market with clear, commercially focused advice across all of their legal requirements, including commercial, corporate, property, construction, finance, tax, dispute resolution, environmental and government relations issues. Our energy and natural resources team has a thriving, multidisciplinary energy practice, with expertise ranging from traditional areas such as mining, oil and gas exploration, and electricity to newer issues like climate change and water allocation. As energy and natural resource issues increasingly find prominence on the international stage, our team of experts is at the centre of these issues, working with government and the private sector to find durable solutions. We provide a full range of services to energy and resources sector clients including: Construction and engineering Project finance Regulation and government affairs Resource consents and environmental Dispute resolution Procurement Capital markets Mergers and acquisitions. 12 REGULATORY UPDATE NEW ZEALAND MINERALS SECTOR

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16 OUR ENERGY AND NATURAL RESOURCES SENIOR ASSOCIATES 14 REGULATORY UPDATE NEW ZEALAND MINERALS SECTOR

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